Fund fee GST options primed for public feedback

Proposed changes to how fund managers charge GST on fees could be up for public consultation by December, according to Matthew Hanley, EY tax partner.

Hanley said after extended behind-the-scenes talks with industry players, the Inland Revenue Department (IRD) would probably publish proposals for official comment in December.

“It’s taken longer than expected to get to this stage,” he said.

The IRD has been looking at updating the current unwieldy GST arrangements that see the impost applied to only 10 per cent of funds management fees.

While the ‘90/10’ method was introduced to take account of the fact that some funds management activities fall outside the legal definition of ‘financial services’ – which are exempt from GST – it also created complexities for managers as well as gripes about input charge-back claims.

It is understood the IRD was considering three options: maintaining the status quo; applying GST to 100 per cent of fund fees, or; removing the sales tax entirely from funds management fees.

Any change would probably see fund fees reshuffled rather than drastic increases or decreases. If the IRD opts for a 100 per cent GST, managers may be able to reduce their base fees as they should be able to claim back a greater portion of expenses; conversely, the zero per cent option could see managers up base fees to recoup GST expenses that become no longer claimable.

Hanley said there was “some precedent” for the GST-exempt approach in the super fund space.

“Super schemes have been fully exempt from GST since it was introduced in 1986,” he said. “Given the close links between managed funds and super schemes it probably wouldn’t be out of order to see [zero GST] as an option.”